Wednesday, March 19, 2008

Now It's Commodities Turn to Dance with Stocks

Following Tuesday's spirited rally, stocks quickly gave up the ghost in a broad retreat which ended up with stocks closing at their lows of the day.

Dow 12,099.66 -293.00; NASDAQ 2,209.96 -58.30; S&P 500 1,298.42 -32.32; NYSE Composite 8,549.50 -276.94

In what has been already a tumultuous week, the bears on the Street seem to have finally exerted themselves on the market while behind the scenes there may have been some serious liquidation of assets which resulted in a major sell-off in gold. Reports were circulating that a number of hedge funds had margin calls to meet, prompting the gold rush, but others pointed to more central bank and government intervention aimed at propping up the US economy.

A key was the a release by Federal Housing Enterprise Oversight to allow Freddie-Mac and Fannie-Mae to relax excess capital requirements, which would free up more than $200 billion into the US housing market. The dollar also broke a string of declines with a strong rally against the Yen and Euro.

It certainly seems the government and the Federal Reserve have taken off the kid gloves and are prepared to fight a downturn in the economy with every weapon at their disposal, and they have plenty with which to inject further liquidity into the general economy.

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Of course, while such actions may be politically expedient for the administration in power, the longer term effects are difficult to gauge.

Like the stock and commodities markets this week, we may be seeing the very early signs of disruptions in an economy being ripped from its economic moorings. Volatility is usually emblematic of uncertainty, and markets certainly won't accept uncertainty for long, but we are a a point of maximum doubt and a crisis of confidence which is only now getting underway.

Declining issues took back the leadership positive over advancers, 4467-1846. New lows buried new highs yet again, 308-69.

The real story was in commodities, especially gold. While oil fell $4.94 to $104.48, gold dropped more than 6%, losing $59.00 to close at $945.30. Silver also was battered, dropping an unprecedented $1.52, to $18.45, a 7.5% loss.

It seems, just a day after the Fed cut rates and two days after Bear Stearns, a major investment bank, was rescued by the Fed, the action is about to get hotter than ever. Just keeping up with the changes to come will be a challenge for the average American, to say nothing of the economic punditry which likely will be wrong more often than right.

Use short stops, try to stay at least 60% in cash and stay tuned. This party's just getting started.

NYSE Volume 5,499,307,000
NASDAQ Volume 2,327,522,250

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